Williams-Sonoma(WSM) - 2024 Q4 - Annual Report

PART I Item 1. Business Williams-Sonoma, Inc. is an omni-channel retailer of home products across nine brands, focusing on growth, service, and earnings - Williams-Sonoma, Inc. is an omni-channel specialty retailer of high-quality products for the home, incorporated in 1973[16] - The company's strategic priorities are returning to growth, elevating world-class customer service, and driving earnings, supported by strategies in core businesses, B2B, emerging brands, and global expansion[18] - The portfolio includes nine brands: Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, West Elm, Williams Sonoma Home, Rejuvenation, Mark and Graham, and GreenRow, marketed through e-commerce, direct-mail catalogs, and retail stores[19] Store Locations and Franchises | Metric | Value | | :--- | :--- | | Total Stores (as of Jan 28, 2024) | 518 | | Stores in U.S., D.C., Puerto Rico | 480 | | Stores in Canada | 19 | | Stores in Australia | 17 | | Stores in United Kingdom | 2 | | Franchised Locations | 138 | - Approximately 81% of merchandise purchases in fiscal 2023 were sourced from foreign suppliers, predominantly in Asia and Europe, with 25% from China[30] - The business is subject to substantial seasonal variations, with a significant portion of net revenues and earnings realized from October through January[32] Employee Statistics (as of Jan 28, 2024) | Metric | Value | | :--- | :--- | | Total Employees | ~19,300 | | Full-time Employees | ~10,700 | | Female Workforce | ~68.1% | | Ethnic Minority Workforce | ~41.1% | | Female VPs and above | ~56.6% | - The company owns approximately 200 unique trademarks/service marks and 420 patents, which are of material importance to its business[45] Item 1A. Risk Factors The company faces material risks from consumer spending, supply chain, cybersecurity, and evolving regulations - Consumer spending on home furnishings and kitchen products is sensitive to economic conditions, inflation, interest rates, and housing market trends, which could reduce demand for products[59] - The company faces risks from global supply chain disruptions, including geopolitical instability, labor disputes, and adverse weather, which can increase costs and delay merchandise delivery[64][66][67] - Cybersecurity risks, including attacks, data breaches, and credit card fraud, could lead to unexpected expenses, revenue loss, litigation, and damage to reputation[100] - Dependence on foreign suppliers (81% of purchases in FY23, 25% from China) exposes the company to foreign currency fluctuations, rising labor costs, and geopolitical risks[109] - Evolving governmental regulations on data privacy (e.g., GDPR, CCPA, CPRA) and cybersecurity disclosure requirements (SEC's Rules) impose complex compliance burdens and potential liabilities[101][102][103] - Failure to attract and retain key personnel, especially with digital/e-commerce and technology skills, could harm business and operating results[95] Item 1B. Unresolved Staff Comments The company reported that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[153] Item 1C. Cybersecurity The company manages cybersecurity risks via a comprehensive strategy, overseen by the Audit and Finance Committee, with no material impact - Cybersecurity risks are assessed, identified, and managed through an enterprise risk management process, including operational risks, intellectual property theft, fraud, and reputational risks[154] - The cybersecurity risk management approach includes system vulnerability scanning, employee training, penetration testing, and third-party risk management[155] - The Audit and Finance Committee is responsible for oversight of cybersecurity threats, receiving quarterly overviews from the Chief Information Security Officer and Chief Technology and Digital Officer[160] - To date, risks from cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition[158][159] Item 2. Properties The company leases 5.89 million sq ft across 518 stores and owns 471,000 sq ft for corporate and data center operations - The company leases store locations, distribution and manufacturing facilities, corporate facilities, and customer care centers for its U.S. and foreign operations[164] Store Count and Leased Space | Metric | As of Jan 28, 2024 | As of Jan 29, 2023 | | :--- | :--- | :--- | | Store count | 518 | 530 | | Gross leased store space | ~5,890,000 sq ft | ~5,962,000 sq ft | - The company owned 471,000 square feet of space as of January 28, 2024, primarily for its corporate headquarters and certain data center operations in California[167] Item 3. Legal Proceedings The company is involved in routine, non-material legal proceedings, establishing reserves for probable liabilities, with no expected material adverse effect - The company is involved in lawsuits, claims, and proceedings incident to the ordinary course of business, which are increasing in number but are not currently material[168] - Loss contingency reserves are established when a liability is probable and the amount can be reasonably estimated[168] - Management believes the ultimate resolution of current legal matters will not have a material adverse effect on the Consolidated Financial Statements[168] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to Williams-Sonoma, Inc[169] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities WSM common stock trades on NYSE, with 273 stockholders, a 26% dividend increase, and a new $1.0 billion stock repurchase program - Williams-Sonoma, Inc. common stock is traded on the New York Stock Exchange (NYSE) under the symbol WSM[172] Stockholder and Share Information (as of March 17, 2024) | Metric | Value | | :--- | :--- | | Stockholders of record | 273 | | Common Stock Outstanding | 64,112,265 shares | | Closing Sale Price | $283.77 | Total Cash Dividends Declared | Fiscal Year | Total Cash Dividends Declared | | :--- | :--- | | 2023 | $236.8 million ($3.60 per common share) | | 2022 | $216.3 million ($3.12 per common share) | | 2021 | $199.4 million ($2.60 per common share) | - In March 2024, the Board of Directors authorized a 26% increase in the quarterly cash dividend, from $0.90 to $1.13 per common share[355] Stock Repurchases (Cost) | Fiscal Year | Stock Repurchases (Cost) | | :--- | :--- | | 2023 | $313.0 million | | 2022 | $880.0 million | | 2021 | $899.4 million | - A new $1.0 billion stock repurchase program was authorized in March 2024, replacing the existing program[175][352] Item 6. Reserved This item is intentionally left blank, indicating no information is required or provided for this section Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance, liquidity, and capital resources, noting a 10.6% decline in net revenues in fiscal 2023, strong liquidity, and 2024 growth priorities - Net revenues in fiscal 2023 decreased by $923.8 million, or 10.6%, to $7,750.652 million, with a company comparable brand revenue decline of 9.9%[185][206][207] - The decline in fiscal 2023 revenues was primarily driven by continuing customer hesitancy towards furniture purchases and a strategy to reduce promotional activity[185][206] Comparable Brand Revenue Growth (Decline) | Brand | FY23 Comp Growth (Decline) | FY22 Comp Growth | | :--- | :--- | :--- | | Pottery Barn | (9.7%) | 14.9% | | West Elm | (18.8%) | 2.5% | | Williams Sonoma | (0.7%) | (1.7%) | | Pottery Barn Kids and Teen | (5.5%) | 0.4% | | Total Company | (9.9%) | 6.5% | - Diluted earnings per share in fiscal 2023 was $14.55, down from $16.32 in fiscal 2022, including impacts from exit costs and reduction-in-force initiatives[191][259] - The company ended fiscal 2023 with a strong liquidity position, including a cash balance of $1.3 billion and $1.7 billion in positive operating cash flow, with no outstanding borrowings under its revolving line of credit[190][229][230] - For 2024, key priorities include returning to growth (driven by core businesses, B2B, emerging brands, global expansion), elevating customer service (supply chain improvements), and driving earnings (pricing power, e-commerce mix, retail optimization, cost control)[196][197][200][201] Financial Performance (in thousands) | Financial Metric | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net Revenues | $7,750,652 | $8,674,417 | | Gross Profit | $3,303,601 | $3,677,733 | | Gross Margin | 42.6% | 42.4% | | SG&A Expenses | $2,059,408 | $2,179,311 | | SG&A as % of Net Revenues | 26.6% | 25.1% | | Operating Income | $1,244,193 | $1,498,422 | | Net Earnings | $949,762 | $1,127,904 | | Effective Income Tax Rate | 25.4% | 24.8% | - Gross margin expanded by 20 basis points to 42.6% in fiscal 2023, driven by improved selling margin from lower input costs (decreased ocean freight) and reduced promotional activity, partially offset by higher occupancy costs[215] - SG&A as a percentage of net revenues increased to 26.6% in fiscal 2023, primarily due to the deleverage of employment costs from higher performance-based incentive compensation, partially offset by managed variable employment costs and advertising leverage[218] Cash Flow Activities (in thousands) | Cash Flow Activity | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,680,273 | $1,052,822 | | Net cash used in investing activities | $(188,257) | $(353,955) | | Net cash used in financing activities | $(598,307) | $(1,178,673) | - The company recognized impairment charges of $14.5 million in fiscal 2023, primarily related to underperforming stores and the exit of Aperture, a division of its Outward subsidiary[248][283] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section details market risks like interest rate, foreign currency, and inflation, with limited material impact in fiscal 2023 - The company is exposed to market risks including significant deterioration of U.S. and foreign markets, changes in U.S. interest rates, foreign currency exchange rate fluctuations, inflation, and economic uncertainty[252] - The Revolver has a variable interest rate, but there were no borrowings under it in fiscal 2023, limiting interest rate risk exposure from debt[253] - Foreign currency exchange rate fluctuations were not material in fiscal 2023, as most purchases and sales are denominated in U.S. dollars, but global expansion may increase this risk[255][256] - Varying levels of inflation were experienced, but the company's operating model and pricing power helped mitigate increased costs in fiscal 2023; future impacts are uncertain[257] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, notes, and the independent auditor's opinion on impairment indicators for long-lived assets Consolidated Statements of Earnings (in thousands, except per share amounts) | Metric | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | | :--- | :--- | :--- | :--- | | Net revenues | $7,750,652 | $8,674,417 | $8,245,936 | | Gross profit | $3,303,601 | $3,677,733 | $3,631,963 | | Operating income | $1,244,193 | $1,498,422 | $1,453,116 | | Net earnings | $949,762 | $1,127,904 | $1,126,337 | | Diluted earnings per share | $14.55 | $16.32 | $14.75 | Consolidated Balance Sheets (in thousands) | Asset/Liability | As of Jan 28, 2024 | As of Jan 29, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,262,007 | $367,344 | | Merchandise inventories, net | $1,246,369 | $1,456,123 | | Total current assets | $2,719,797 | $2,036,080 | | Total assets | $5,273,548 | $4,663,016 | | Total current liabilities | $1,880,315 | $1,636,451 | | Total liabilities | $3,145,687 | $2,961,965 | | Total stockholders' equity | $2,127,861 | $1,701,051 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Jan 28, 2024 | Jan 29, 2023 | Jan 30, 2022 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,680,273 | $1,052,822 | $1,371,147 | | Net cash used in investing activities | $(188,257) | $(353,955) | $(226,247) | | Net cash used in financing activities | $(598,307) | $(1,178,673) | $(1,491,985) | - Deloitte & Touche LLP provided an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of January 28, 2024[379] - A critical audit matter identified was the identification of indicators of impairment for store-level long-lived assets, due to significant estimates and assumptions related to revenue growth rates and gross margin[386][387] Consolidated Statements of Earnings Presents the company's revenues, expenses, and net earnings over specified fiscal periods Consolidated Statements of Comprehensive Income Details the company's comprehensive income, including net earnings and other comprehensive income items Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific fiscal year-ends Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts over specified fiscal periods Consolidated Statements of Cash Flows Reports the cash generated and used by operating, investing, and financing activities Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies, financial instruments, and other disclosures supporting the financial statements Note A: Summary of Significant Accounting Policies Outlines key accounting principles and methods used in consolidated financial statements Note B: Property and Equipment Details the company's property and equipment, including depreciation and asset values Note C: Borrowing Arrangements Describes the company's debt and credit facilities, including terms and conditions Note D: Income Taxes Explains the company's income tax provisions, deferred taxes, and effective tax rates Note E: Leases Details the company's lease arrangements, including right-of-use assets and lease liabilities Note F: Earnings Per Share Presents the calculation of basic and diluted earnings per share Note G: Stock-Based Compensation Describes the company's stock-based compensation plans and related expenses Note H: Williams-Sonoma, Inc. 401(k) Plan and Other Associate Benefits Details the company's employee benefit plans, including the 401(k) plan Note I: Commitments and Contingencies Outlines the company's contractual commitments and potential contingent liabilities Note J: Stock Repurchase Program and Dividends Details the company's stock repurchase activities and dividend declarations Note K: Segment Reporting Provides financial information by business segment, detailing revenue and operating income Note L: Derivative Financial Instruments Describes the company's use of derivative financial instruments for risk management Note M: Fair Value Measurements Explains methodologies and inputs for fair value measurements of financial instruments Note N: Accumulated Other Comprehensive Income (Loss) Details the components of accumulated other comprehensive income or loss REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Presents the auditor's opinion on consolidated financial statements and internal control over financial reporting Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported that there have been no changes in or disagreements with accountants on accounting and financial disclosure matters - There have been no changes in or disagreements with accountants on accounting and financial disclosure[390] Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of January 28, 2024, with no material Q4 changes - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of January 28, 2024[391] - Management assessed and concluded that the internal control over financial reporting was effective as of January 28, 2024, based on COSO criteria[393] - No significant changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2023[395] Item 9B. Other Information The company reported that none of its directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fourth quarter of fiscal 2023 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fourth quarter of fiscal 2023[396] Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to Williams-Sonoma, Inc[397] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement[399] Item 11. Executive Compensation Executive compensation information, including director compensation, is incorporated by reference from the Proxy Statement, excluding 'Pay Versus Performance' - Executive compensation information is incorporated by reference from the Proxy Statement, excluding 'Pay Versus Performance'[400] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the Proxy Statement - Security ownership information for beneficial owners and management is incorporated by reference from the Proxy Statement[401] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement[402] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services from Deloitte & Touche LLP is incorporated by reference from the Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the Proxy Statement[403] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists consolidated financial statements, schedules, and various exhibits filed or incorporated by reference in the Form 10-K - The section lists the Consolidated Financial Statements of Williams-Sonoma, Inc. and subsidiaries, filed as part of this Annual Report on Form 10-K[406] - Financial Statement Schedules have been omitted as they are not required, not applicable, or the information is included in the financial statements or notes[406] - A comprehensive Exhibit Index is provided, detailing various corporate documents, financing agreements, stock plans, and certifications, many of which are incorporated by reference[407][410] Item 16. Form 10-K Summary The company indicated that no Form 10-K Summary is provided for this report - No Form 10-K Summary is included in this report[419]